Uncertain Future for Growth in Life Sciences

Clusters Create Competitive Advantage

Michael Porter, in his essay Clusters and Competitiondescribes a virtuous geographic relationship among government, finance, education and industry which combine to create competitive advantage. Think high performance autos in southern Germany, high fashion shoes in Italy, tulips in Holland. Think life sciences in Massachusetts.

Life sciences are the engine behind Massachusetts’ growth economy. But they might face an uncertain future due to:

By all accounts, growth in the life sciences sector saved Massachusetts’ economy from tanking in the great recession. Venture funding fell; it bottomed out in 2009. But NIH funding remains high, higher than any other state except California. And on a per capita basis, NIH funding in Massachusetts is off the charts. Momentum in the sector is strong, yet there are clouds on the horizon.

Venture Funding Down for Biotech

By 2011 venture capital rebounded, but not for biotech companies. High tech is booming behind new business models fueled by cloud computing, social media and smart phones. These start-ups get the lion’s share of deals.

There are fewer venture funds today and fewer investors in those funds. There is a focus on capital efficiency, faster exits. Biotech is not an efficient investment. New products are slow to market and the failure rate is high.

Another disturbing trend in biotech start-ups is that fewer successful ones ever reach an IPO. They get gobbled up by larger firms. M&A exits far outpace IPO’s in this space, and the trend has increased. More big pharma companies take an ownership stake after Phase I or II. Often, an acquisition means relocating the company and its jobs out-of-state.

Should we be concerned about the loss of local investment on the long-term health of the biotech cluster? Porter argues, “The ultimate test of the health of a cluster is its rate of innovation.”

There is no shortage of innovation in the state. Incubators and accelerators are full and growing. But the high cost of doing business in Massachusetts and the lack of a vibrant, skilled middle work force makes it hard to scale a company here.

So far, the high cost of discovery has paid off because of the healthcare system’s willingness to pay a high price for new products. As the ACA, payers and employers conspire to lower the cost of care, there will be less room in the budget for high-priced innovation unless it creates a better outcome and a lower cost per care dollar spent.

Government, Education Key to Health of Sector

How to improve the prospects for a healthy biotech sector and a healthy state economy? Porter’s cluster theory points to the role of government as potentially making the biggest difference. Investment will follow the path of least resistance and greatest return. Our university system is world-class and likely to stay that way. But the lack of affordable housing and a qualified workforce is an addressable problem.

Local zoning ordinances often get in the way of increasing access to affordable housing. Put innovative legislation like Massachusetts’ Comprehensive Permit Law and incentives like Connecticut’s Incentive Housing Zones on the front burner to create a more comprehensive approach for solving this problem.

Much of the emphasis of our education system is toward earning a 4 year college degree. But educators should pay more attention to encouraging high school graduates who might not otherwise continue their education to earn an associate degree or attend a technical school in one of the STEM areas. These are the skills which are in short supply and a primary reason biotech companies outsource jobs.

There is no guarantee that our vibrant biotech sector will persist. We need only remember the legacy of our once bustling high-tech sector as a reminder.

Here is Similar StoryYou’ve started your own comanpy, established proof of concept and might even hold a patent for your idea. You need money to develop this idea and grow your comanpy. Where do you turn? There are many different options to obtaining research funding for a new biotech startup. One of these is private investment from a venture capitalist, a venture investment comanpy, or angel investors. But before any of these people will risk financing your baby you have several things to prove. What does a seasoned biotech investor look for in a comanpy?

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